If you are a trustee, you should be well aware that the Trust Act 2019 comes into effect at the end of next January. You should also be aware that there are changes that affect you and your responsibilities.
We share some key points to bear in mind as you conduct your trustee duties:
- A trustee has a decision-making role and must exercise their mind independently.
- Trustees must agree unanimously unless the trust deed says otherwise (e.g. where decisions are made by majority).
- Good decisions are founded on good inquiry, information, advice, and process.
- Trustees should meet at least annually to ensure the outcomes of the trust are being achieved.
Protocols for working with co-trustees
It is important to agree on protocols for the way co-trustees work together. All trustees need to understand the governing terms and agree on protocols for making decisions, overseeing trust property, financial transactions, the timing of meetings, managing potential conflicts of interest, etc.
Trustees must also agree on how they will consult and communicate together and who will attend to day-to-day administration tasks.
Regular reviews
Annual reviews
The trigger for the annual review for each trust appointment is the preparation of the annual statement of account. This is the time for trustees to re-acquaint themselves with the governing terms, property under management, and stakeholder relationships. The annual review enables a trustee to assess the overall performance, communicate with stakeholders, inquire into changes in needs and circumstances, identify potential issues or risks, confirm the risk rating, and plan for what’s coming up in the year ahead. The annual review is also the time to consider whether the commercial terms of engagement are appropriate.
Self-initiated reviews
Trustees are encouraged to undertake a quick high-level review whenever there is a change in the trust circumstances. Examples could include events like a change in investment market conditions, change of tenants, purchase or sale of property, investment activity, requests for assistance, etc.
Trustee decisions
When a new person is appointed and accepted as a trustee, the trust deed should be reviewed to understand the terms for making decisions. The trust deed may require decisions to be made either
unanimously or
by a majority. Where the trust deed is silent, decisions must be unanimous.
When considering trustee decisions, trustees should check whether any trustees who are also beneficiaries can make decisions in their own favour, or whether there are rules on self-dealing (sale of assets to a trustee).
The broad decision process that trustees go through is:
- Can we? (determine the authority)
- Should we? (duly consider relevant factors, weigh up pros and cons)
- Will we? (make a decision)
- Have we? (implemented decision).
Many decisions can involve risk, pressure, deadlines, and potential for conflicts. Take advice when needed.
Reporting to stakeholders
Trustees are accountable for their performance to their beneficiaries. Trustees must ensure beneficiaries have sufficient information to enable the trust and the trustees’ duties to be enforced against the trustees.
Decide which beneficiaries will receive reporting and financial statements.
Trustee meetings
Meetings provide an opportunity for trustees to communicate with co-fiduciaries, beneficiaries, principals and other stakeholders. Meetings can be face to face, by a video facility (e.g. Skype, Zoom, etc) or by telephone after the dispatch of the annual accounts.
Factors that may determine the type of meeting to be held will include the geographical location of the other parties and the level of financial or other activity in the appointment. The minimum standard is an annual telephone meeting.
Professional trustees should take the lead in triggering meetings and bringing structure and discipline to meetings. A structured agenda is suggested with time allowed for an appropriate review, questions, decisions, and ongoing learning. Meetings provide an opportunity to sign documentation, agree on protocols and procedures and forward plan. Trustees of more active trusts will meet more regularly.
Structured agendas, process and formality are a trustee’s friend.
Timing of meetings
Trustees should meet at least annually or whenever significant decisions are required.
Trustee minutes
Prepare minutes recording who attended meetings and what was discussed or considered. Check all trustees sign minutes, resolutions, or ratifications.
Forward planning
Forward planning is an important activity for trustees and planning will generally be undertaken as part of the annual review and meeting process. Trusts run over long periods of time, so it is important to periodically take time out regularly as trustees to reflect and plan for what may be coming up. For example:
- Governing terms (settlor wishes, changes in business practice relating to trusts, whether it is appropriate to consider winding-up an estate or trust, etc).
- Beneficiary needs and circumstances (e.g. completing education and travelling overseas, deteriorating health, addictions, etc).
- Upcoming changes in trust property (continuing suitability of assets, maintenance or capital
- improvements, upcoming sale of the family business or farm, etc).
- Preparing the next generation of inheritors.
- Preparing for future transitions and known events (minors attaining 18 years, beneficiary moving to a retirement home, changes in trustees, etc).
Moore Markhams is working hard to ensure we have all the assistance our clients need in relation to their trusts or role as trustee.
Should you have any questions or queries, we encourage you to get in touch.
For further reading around the new Trusts Act:
https://www.markhams.co.nz/news/august-2020/are-you-ready-for-the-new-laws-around-trusts
https://www.markhams.co.nz/news/september-2020/trusts-and-beneficiaries-what-the-new-act-requires